The war and the US budget deficit

Wars are the kind of events that damage public finances. First of all, war has a cost. After a month of operations, the bill stands at around $ 30bn (0.1% of GDP). This is a drop in the ocean compared with the federal budget deficit (>5%), but the cost will increase with the duration of the conflict. In addition, the uncertainty shock tends to reduce economic activity and consequently erode the tax base made up of wages and profits. Last but not least, the rise in oil prices is stoking fears of inflation and thus putting off or dashing hopes of monetary easing. This increases the inflation premium on Treasury bonds and raises debt servicing costs.